1. Apply With at Least 3-4 Mortgage Companies – Compare offers. Subprime mortgage borrowers are at the highest risk for excessive mortgage fees, inflated interest rates and other unethical mortgage practices. Applying with several mortgage companies will give you an idea of what you can expect your interest rate and fees to be and will lessen your chance of being “taken” by an unscrupulous lender. Having several offers in hand will also give you leverage to negotiate for lower rates and fees.
2. Consider a Down Payment – When you apply for a new home loan, there are only a few factors that weigh heavily on your approval. Some of those factors are credit, income, debt-to-income ratio, employment history and down payment amount. If your credit is weak, you will need to really strengthen those other factors. Consider creative ways to come up with even a small down payment of around 2-5%. That might be enough to get you a better approval.
3. Consider Waiting to Apply Past the 2 Year Mark – Home mortgage lenders typically are more willing to lend to people with a past bankruptcy when they have past the 2-year mark from the date of their bankruptcy discharge. If you are close to that date anyway, consider waiting. After the 2 year mark, most lenders are willing to work with people with a bankruptcy.
4. Watch Out For the PrePayment Penalty – Most subprime mortgage lenders will tack on a prepayment penalty to the loan. If you are ok with a prepayment penalty and the loans interest rate is not too high, make sure the penalty is for a reasonable amount of time. It should be somewhere between 6 months to a year. If your penalty is for 2 years. Make sure that your interest rate is one you can live with for the entire 2 years. The penalty is usually the equivalent of 6 months of interest payments. Be careful not to lock yourself into a rate that is too high without the opportunity to refinance when your credit has improved.
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